Is this portfolio diversified, AGG, EWC, ILF, PCL, SPY, VEU?

Question

please explain the anser please. thanks

Answer 1

AGG: iShares Aggregate Bond - Good core bond holding but Vanguard Total Bond Market ETF BND provides exposure to virtually the same securities at a fraction of the price.

EWC: MSCI Canada Index fund - Per Morningstar: "Canada's big banks prop up iShares MSCI Canada Index's portfolio quality, but the rest is a gamble."

ILF: S&P Latin America 40 Index - Per Morningstar: "This fund tracks the S&P Latin American 40 Index, which draws together 40 of the largest firms in Mexico, Brazil, Chile, and Argentina. The index weights holdings by free-float-adjusted market cap. It's very top-heavy, with the biggest 10 names accounting for roughly two thirds of assets. In addition, the portfolio skews decidedly toward miners, telecoms, oil majors, and big banks, which loom large over the Latin American economic landscape. Technology and consumer-related issues are in short supply here. Investments are denominated in the local currency and thus subject to exchange-rate fluctuations."

PCL: Plum Creek Timber Company: No, too narrow.

SPY: mimics the S&P 500 Index, a market-cap-weighted collection of U.S. stocks. All large Cap. A total Stock market would be much better (would have mid-cap (medium sized companies) and small cap (small companies). I suggest VTI.

VEU: Excellent international diversification. It tracks the performance of the FTSE All-World ex-US Index. That index has exposure to all the developed markets as well as a large number of emerging markets.

VEU is all you need for emerging market/international exposure. Get rid of the other 2.

Vanguard's total bond market is cheaper than the ETF you have. (see above)

You lack mid and small cap exposure so a total stock market fund would be better. VTI

Also, you could consider a REIT and high yield bond fund and TIPS for further diversification.

I have no idea how much you have allocated to each holding or what you risk tolerance is.

www.saveyournestegg.com gives more detail about diversification.

Answer 2

That portfolio certainly has diversification.  The question might better be asked as to the degree of diversification rather than is it diversified.  

Here is my critique.

AGG is only U S investment grade bonds.  It does not contain any foreign bonds so in that respect it is subject to the declining value of the dollar and U S inflation.  A better alternative might be to add WIP in addition to AGG.

EWC is certainly ok but it is country specific--Canada.  A better alternative in my opinion would be EFA, a much broader international fund of developed economies.

ILF is Latin America only.  EEM would be a better choice as it incorporates many emerging markets besides Latin America.  

PCL.  Sure why not but it does not necessarily add anything to diversification and if you were to make a bet of more than about 5% of your portfolio the harm such an investment could do would not be pleasant.

SPY.  My main critique of SPY is that it is capitalization weighted as indeed are many of the index funds.   That does not do diversification any good at all.  A better alternative is RSP which contains the S&P 500 but is equal weighted instead of cap weighted.

VEU is perhaps even a better choice than EFA and EEM as it incorporates both in one fund.  

The main sectors lacking are small cap and mid cap which significantly adds to diversification.  

IWM will add the small cap and IWR the mid cap.  

There are many other combinations that can be added to broaden diversification but it can become burdensome to keep adding this that and the other.  

GLD is one option.  DBA is another.